Wholesale distributors inherently operate within a complex pricing environment. Pricing complexity is simply defined as a high number of SKUs, customers and markets or channels. Consider the firm with 10,000 SKU items, 1,000 customers and five different markets or channels. The number of possible price combinations is 50 million. While it is unlikely that 50 million prices will actually be required in commerce it points to the potential complexity that exists in a wholesale distributor environment. Wholesale distributor pricing strategies can become complex as well.
Many manufacturing companies face similar challenges with pricing complexity. However, two different situations exist that create complexity. The first is the firm that has a large number stock-keeping units. Like distributors, these environments are complex due to the large number of products, customers and markets.
Alternatively, made-to-order manufacturers have a different but just as challenging situation making it difficult to compare products and their price points.
When sales reps are tasked with setting or adjusting prices it is easy to see the challenges in arriving at the best price for every selling situation. Now consider additional factors like competitive pressure at your largest customer and the risk of missing the pricing target increases significantly.
When we put the front line sales team in the position to influence prices without sufficient price guidance we are basically sending them to battle without sufficient weapons. Most often, sales reps will retreat on price in order to close the sale and result in leaving money on the table. Or, in fewer cases, unknowingly overprice the deal and lose the sale altogether.
What if each sales rep could leverage the collective pricing experience of the entire sales team? Here in lies the solution for managing complex pricing environments. Faced with a new pricing event, we want to compare it to similar situations from the past. A wholesale distributor pricing strategy will focus on managing complex pricing environments using invoice pricing data to identify optimal price points from historical transactions. The objective is to put pricing power in the hands of the sales team that increases sales close rates and lifts profit margins.